November 15, 2016

If appropriate rules and system edits are in place, exclusionary modifiers are the link to unbundling liability.

Unbundling is a commonly asserted but often misunderstood fraud theory, even by coding experts. When evaluating potential unbundling as a fraud theory, it’s important to differentiate when separate reporting of services is simply correct coding and when it becomes a scheme to defraud.

The Office of Inspector General (OIG) has defined unbundling as occurring when a “billing entity uses separate billing codes for services that have an aggregate billing code” (65 F.R. No. 243, 70138, 70142). The OIG has also defined unbundling as “billing for eachcomponent of the service instead of billing or using an all-inclusive code” (65 F.R. No. 194, 59434, 59439). Unfortunately, these definitions are too simplistic. Knowing when unbundling is potentially problematic requires an understanding of the differences between the rules pertaining to coding, billing, and reimbursement.

First Comes Coding

“Medical coding,” according to AAPC, “is the transformation of healthcare diagnosis, procedures, medical services, and equipment into universal medical alphanumeric codes.” CPT® and HCPCS Level II codes are the required code set for reporting physician services and supplies to Medicare (45 C.F.R. §162.1002). Each aspect of a physician encounter that can be described using either a CPT® or HCPCS Level II code can, and should, be coded, so all physician work performed can be understood.

Next Comes Billing

Medical billing is the work necessary to translate a properly coded healthcare service into a claim. It is the process by which services are reported to either the patient or to a third-party payer for payment either on a CMS-1500 claim form or electronically using the 5010-transaction standard.

The responsibility of a medical biller in a healthcare facility is to follow the claims to ensure the practice receives appropriate reimbursement for the work the providers perform. A knowledgeable biller can optimize revenue performance for the practice.

Billing a service should not be confused with whether a service is “billable,” which suggests analyzing whether a service is reimbursable. Semantics aside, all services that are performed and correctly coded are billable. Whether a provider or entity chooses to report or “bill” a particular service in circumstances where they don’t think the service is compensable often depends on the objectives of the provider or entity. When the objective is an efficient claims process, the provider or entity may elect not to bill a non-compensable service. Alternatively, when the objective is to classify completely the work performed, or it’s mandated by the payer, the provider or entity includes the CPT® or HCPCS Level II codes associated with the non-compensable components of the service on the claim (bill). In some cases, this is done just to demonstrate to the patient that the service is, in fact, not covered so the patient can understand their payment obligation.

Then Comes Reimbursement, Maybe

In third-party payer cases, such as Medicare, before a coverage and reimbursement determination is made, the physician must:

  • Perform a service(s) on behalf of a patient;
  • Identify and assign the appropriate CPT® and/or HCPCS Level II code(s) to completely represent each component of the overall service provided; and
  • Report that information (as well as other necessary information) to the payer through submission of a claim.

The payer evaluates the claim and makes a coverage determination based on the terms of the patient’s benefit contract or the cost containment provisions of the statutory reimbursement scheme found under programs like Medicare, Medicaid, workers’ compensation, or automobile first-party benefit programs. For covered services, the payer makes a payment determination based on the applicable fee schedule and other reimbursement rules.

Because coverage and reimbursement rules vary from payer to payer (and even plan to plan), the ultimate payment result can vary for the exact same service(s) among payers and plans. It is these “other reimbursement rules” where the concept of unbundling becomes a potential issue.

Unbundling Scenario

In this scenario, a provider is submitting claims to an automobile carrier. Medicare reimbursement rules are applicable and the provider is not permitted under the reimbursement regulations to “fragment or unbundle claims except as consistent with Medicare.” The provider performs decompressive neuroplasty, which involves:

  • An injection of lidocaine (62311 Injection(s), of diagnostic or therapeutic substance(s) (including anesthetic, antispasmodic, opioid, steroid, other solution), not including neurolytic substances, including needle or catheter placement, includes contrast for localization when performed, epidural or subarachnoid; lumbar or sacral (caudal));
  • A myelogram without dural puncture of the L5 nerve root with contrast, which necessarily involves the injection procedure for myelography (62284 Injection procedure for myelography and/or computed tomography, spinal (other than C1-C2 and posterior fossa)) and the actual myelogram (72265 Myelography, lumbosacral, radiological supervision and interpretation);
  • A percutaneous neuroplasty involving the injection of saline (62282 Injection/infusion of neurolytic substance (eg, alcohol, phenol, iced saline solutions), with or without other therapeutic substance; epidural, lumbar, sacral (caudal)); and
  • Fluoroscopic guidance for each of the various procedures (77003 Fluoroscopic guidance and localization of needle or catheter tip for spine or paraspinous diagnostic or therapeutic injection procedures (epidural or subarachnoid)).

Because Medicare reimbursement rules are applicable, Medicare’s fee schedule is relevant, as are National Correct Coding Initiative (NCCI) edits. In analyzing the NCCI edits relative to all of the above codes, only the myelogram (72265) is payable. The other procedures, either directly or indirectly, are considered components of the myelogram.

In this circumstance, is it improper for a provider to separately report each service — and if he or she did, does it constitute impermissible unbundling?

To answer this, first understand that NCCI is a reimbursement rule. For services reported to Medicare, the Medicare administrative contractor (MAC) would apply the NCCI edits and deny payment for all services except the myelogram (72265). Separate reporting of bundled services is not impermissible unbundling when separate reporting was not intended to, and does not reasonably lead to, improper reimbursement. In this scenario, separate reporting was simply the correct and complete reporting of the entire service. Such reporting methods are performed for cost tracking, provider compensation tracking (where providers are in part compensated based on worked relative value units (RVUs)), or other reasons. In fact, Medicare Outpatient Prospective Payment System rules require separate reporting of each service and supply provided in an outpatient hospital or ambulatory surgical center (ASC) so Medicare can track outlier and transitional corridor payments.

According to the Medicare Claims Processing Manual, Pub. 100-4, Chapter 4, Section 10.4: “[I]t is extremely important that hospitals [and ASCs] report all HCPCS codes consistent with their descriptors; CPT and/or CMS instructions and correct coding principles, and all charges for all services they furnish, whether payment for the services is made separately paid [sic] or is packaged.”

When Separate Reporting Becomes Unbundling and Potentially Fraudulent

Separately reporting services using exclusionary modifiers to bypass the automatic bundling of the payment is problematic. The potential fraud theory is not in separately reporting the various procedures, but in the misrepresentation associated with reporting the modifier. Modifiers in these situations make a more important representation regarding the payer’s reimbursement obligation than the procedure code. For potential fraud liability to exist, the misrepresentation must be “material” and “knowing.”

A material misrepresentation impacts the payer’s obligation to pay the claim at all, or the amount of payment that the payer is obligated to make. When a modifier, such as modifier 59 Distinct procedural service, is used without justification and results in an unentitled payment, the separate reporting becomes unbundling, which is actionable.

Heed Relevant Reimbursement Rules

Although NCCI bundling rules are used in the above scenario, don’t assume NCCI is always a relevant reimbursement rule. CPT® Editorial Panel code guidance has its own set of bundling rules relative to what services are included or excluded. As these instructions are beyond the scope of the national standard code set, it’s important to determine whether such instructions are relevant.

The terms of cost containment regulations pertaining to automobile first-party or workers’ compensation claims vary from state to state. They may incorporate NCCI or CPT® Editorial Panel guidance relative to reimbursement. In a worst-case scenario, both are incorporated, leading to the likelihood of conflict between the rules.

For commercial indemnity insurers, the same problems can exist. In many cases, there are no reimbursement rules pertaining to bundling. In others, the carrier may incorporate NCCI, CPT® Editorial Panel guidance, or its own bundling rules. It does so either expressly in the provider agreement or indirectly through incorporated medical or reimbursement policies. As a result, you must identify that a relevant and binding reimbursement rule supports your unbundling theory. Even when such rules are identified, you must delineate whether the provider simply reported the services performed, or inappropriately unbundled services. If exclusionary modifiers are not used, without an expressed and binding instruction to not report certain services separately, unbundling as a fraud theory is a difficult case to make.

Accurate Coding Is Never Fraud

Although inappropriate unbundling can result in significant overpayments, many unbundling cases are defeated because the provider simply reported each service that was done using accurate CPT® and/or HCPCS Level II codes. When services are separately reported without instruction to the contrary, and without additional modifiers (which cause separate payment where it may not be entitled), such reporting simply notifies the payer of all the procedures for the entire service. It’s up to the payer to then determine what components of the service are compensable under the applicable reimbursement rules. The absence of such rules precludes the viability of unbundling as a fraud theory. If there are appropriate rules and system edits in place, and a provider misuses exclusionary modifiers to bypass those payment edits to receive unentitled reimbursement, then an allegation of unbundling by the provider as a fraud theory is potentially sustainable.


OIG Compliance Guidance for Third Party Medical Billing Companies, 65 F.R. No. 243, 70138, 70142 (Dec. 18, 1998):

OIG Compliance Guidance for Individual and Small Group Practices, 65 F.R. No. 194, 59434, 59439 (Oct. 5, 2000):

AAPC, What Is Medical Coding?

AAPC, What Is Medical Billing?

Medicare Claims Processing Manual, IOM Pub. 100-4, Ch. 4, §10.4